Category: Housing Market (Page 10 of 40)

The Benefits of the FHA Loan – and Why It’s a Popular Choice Right Now

November 13, 2023 / Tom Bonetto

FHA (Federal Housing Administration) loans can be a great choice for many looking to purchase a primary residence, and not just first-time homebuyers. These loans offer several advantages that make home ownership more accessible.

One of the key benefits of the FHA loan is the lower down payment requirement, making it easier for individuals with limited savings to enter the housing market.

Lower Down Payment

One of the standout features of FHA loans is the reduced down payment requirement. While conventional mortgages often demand a larger down payment, sometimes around 20%, FHA loans typically require only 3.5% down.

This lower upfront cost opens doors for prospective buyers who may struggle to come up with a significant down payment, providing a more attainable path to home ownership.

Gifts for Down Payments

Receiving FHA gift funds can make it easier to qualify for an FHA loan…but borrowers must follow a particular process for eligibility. First, the money can’t be a loan – it has to be a gift with no scheduled repayment. Secondly, it must be a family member, a charitable organization, an employer, or a governmental agency assisting families or first time buyers.

FHA guidelines for gift funds include:

Gift funds must be from an acceptable source such as savings accounts, stocks, or savings bonds
Gift funds must be verified entering into a borrower’s bank account and leaving the donor’s bank account
Documentation showing proof funds are not a collateralized loan such as an FHA gift letter

Borrowers may have to provide additional supporting documentation, as well.

Mortgage Insurance

Mortgage insurance premium (MIP) is a type of mortgage insurance that is required of homeowners who take out loans backed by the FHA. For most borrowers that bring in a 3.5% down payment, the fee is .55 of the loan amount.

So, if you have a $300,000 FHA loan, your monthly mortgage insurance would cost $137.50 per month. In many cases, this mortgage insurance is MUCH less expensive than that of conventional loans and private mortgage insurance (PMI).

You can learn more about mortgage insurance here…

Accessible Credit Requirements

FHA loans are also known for being more forgiving when it comes to credit requirements.

Conventional mortgages may be challenging for individuals with less-than-perfect credit scores, but FHA loans are designed to accommodate a broader range of credit profiles. Most investors will lend with a credit score of 580 or better.

This enables people with lower credit scores to qualify for a home loan, giving greater opportunities for those who may have faced obstacles in the conventional mortgage market.

Flexible Qualification Criteria

FHA loans offer flexibility in qualifying criteria, considering factors beyond traditional income and credit scores.

Lenders can take into account compensating factors, such as a history of timely rent payments or utility bills, making it easier for individuals with unique financial situations to secure a mortgage. This flexibility allows the consideration for a more diverse set of borrowers in the homebuying process.

Government Backing and Stability

FHA loans are backed by the federal government, providing an additional layer of security for both lenders and borrowers.

This backing makes lenders more willing to approve loans for individuals who may not meet the stringent criteria of conventional mortgages. The government support also helps stabilize the housing market by providing a reliable option for financing, even during economic downturns.

In Conclusion

FHA loans provide a range of benefits that contribute to making homeownership more accessible for a diverse group of borrowers. From lower down payment requirements, to the use of gift funds, to flexible credit criteria and government backing, these loans play a crucial role in expanding opportunities for prospective homebuyers.

Do reach out to me for more regarding these FHA programs, as it would be my pleasure to help in any way possible!

The Fed’s Decision, Continued Home Appreciation, and Refinance Opportunities

November 6, 2023 / Tom Bonetto

There’s been a flurry of news recently, so let’s take a look at what’s been going on – both with interest rates and home valuation.

Is the Fed Done With Rate Hikes?

After eleven rate hikes since March of last year, the Fed left their benchmark Federal Funds Rate unchanged at a range of 5.25% to 5.5% at their meeting last Wednesday, just like they did in September.

The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates.

When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

What’s the bottom line?

The Fed’s decision to pause rate hikes for the second straight meeting was unanimous. However, Fed Chair Jerome Powell did leave the door open for another rate hike at their next meeting on December 13.

The strength of the labor sector remains a key factor in their decision, with the Fed looking for clear signs that the labor market is softening as they consider further rate hikes.

While the latest job reports for October were weaker than forecasted, it remains to be seen if that’s enough for the Fed to pause additional hikes.

The Fed will see November’s job data from ADP and the BLS (releasing December 6 and December 8, respectively), along with upcoming inflation reports, which will certainly play a role in their decision.

Home Prices Hitting New Highs

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.9% from July to August after seasonal adjustment, marking the seventh consecutive month of gains.

The Federal Housing Finance Agency’s (FHFA) House Price Index also saw home prices rise 0.6% in August, with their index reporting gains every month so far this year.

Note that FHFA’s report measures home price appreciation on single-family homes with conforming loan amounts, which means it most likely represents lower-priced homes. FHFA also does not include cash buyers or jumbo loans, and these factors account for some of the differences in the two reports.

What’s the bottom line?

Home values have hit new all-time highs according to Case-Shiller, FHFA, CoreLogic, Black Knight and Zillow, more than recovering from the downturn we saw in the second half of 2022. This year, prices are on pace to appreciate between 6-8% depending on the index, based on the reported pace of appreciation through August.

These indexes show that now remains a great opportunity for building wealth through homeownership and appreciation gains.

Refinance Opportunities

Refinances still make up almost one third of all mortgage transactions, even though rates have risen. You may be wondering how this can be?

Many consumers have amassed a large amount of debt, paying much higher rates of interest, thanks to the Fed hiking rates so aggressively. And many of those individuals are only making the minimum payments, with no path to paying off their debt.

At the same time, most homeowners have record levels of equity in their homes.

Many homeowners are benefiting from a type of refinance where we pull that equity out of the home to pay off those debts, saving money on the overall monthly payments.

Additionally, there are ways to gain equity at an accelerated pace and significantly shorten the length of your mortgage, by applying those savings as an additional payment each month.

Call me toda y to review your current debt situation and see if I can help!

A Must-Listen Podcast for Real Estate Professionals

October 31, 2023 / Tom Bonetto

I’d like to link to a podcast from my good friend and fellow mortgage originator Mike Nelson. Mike is a fantastic resource and provides some wonderful perspective on what’s happening in the marketplace today.

In this episode, he is interviewing real estate agent Paul Gusiff – and it’s a must listen. If you are short on time, start listening at the 6:20 mark to the end. It’s really incredible!

Paul has been top tier agent for over 35 years and provides some excellent insights on what’s happening today and how to get ready for the next business cycle.

Paul Gusiff is one of the top real estate agents in Southern California.

Mike Nelson provides fantastic service for loans in Colorado, Florida, and Texas.

I hope you enjoy it!

Great News for Multi-Unit Financing | A Low Down Payment Option

October 18, 2023 / Tom Bonetto

I have some great news to report, as Fannie Mae is dramatically reducing the down payment requirements for purchasers utilizing multi-unit properties as their primary residence.

Historically, buyers would need to bring in a minimum of a 25% down payment for a 3-4 unit property or 15% for a duplex. That all changes starting November 18, 2023.

Now, any multi-unit property (2-4 units) can be purchased with just 5% down!

Here are the new calculations:

Here’s a little bit more:

Specifics

This is for a primary residential purchase only, and mortgage insurance will apply if utilizing the 5% down option.

Secondly, 75% of the expected rents of the non-owner occupied unit(s) can be used as qualifying income for the loan application.

Please do contact me for more, as it would be my pleasure to help with this type of purchase.

The Folly of Timing the Real Estate Market

September 29, 2023 / Tom Bonetto

Real estate is a substantial investment, often representing one of the most significant financial commitments an individual or family can make.

Given the importance of this investment, some are tempted to try to time the real estate market, hoping to buy at the lowest possible price or sell at the highest.

However, attempting to time the market in real estate is generally a bad idea, fraught with risks and potential pitfalls.

Let’s take a look at some of the factors…

Market Unpredictability

One of the fundamental reasons why trying to time the real estate market is a bad idea is the inherent unpredictability of market fluctuations.

Real estate markets are influenced by a myriad of factors, including economic conditions, interest rates, local trends, and demographic shifts. These factors are often difficult, if not impossible, to predict accurately.

As Tyrone Foster states in his article ‘Why Timing the Real Estate Market Rarely Works’: “Housing prices aren’t merely a byproduct of available inventory. They also depend on broader economic factors, mortgage interest rates, loan availability, incomes, and prospects for the future.”

Attempting to time the market requires forecasting these variables with precision, a task that even seasoned professionals struggle with.

Missed Opportunities

Market timing often involves sitting on the sidelines, waiting for the market to reach an optimal point.

However, this means potentially missing out on opportunities for rental income or property appreciation. In a rising real estate market, the property’s value may increase significantly, and rental income can provide a steady cash flow, all of which is forgone when trying to time the market.

Transaction Costs

Buying or selling a property involves transaction costs, such as real estate agent commissions, closing costs, and taxes.

Attempting to time the market may result in multiple transactions, each incurring these expenses. These costs can quickly eat into any potential gains from market timing, making it a financially inefficient strategy.

Holding Costs

While waiting for the “perfect” market moment, you may end up holding onto a property for an extended period.

During this time, you’ll incur ongoing costs like mortgage payments, property taxes, maintenance, and insurance. These holding costs can erode any potential profits from market timing.

Emotional Stress

Timing the real estate market can be emotionally taxing. Constantly monitoring market conditions and trying to predict the best moment to buy or sell can lead to stress and anxiety.

Emotions can cloud judgment and lead to impulsive decisions that may not be in your best interest.

Risk of Overpaying or Underselling

Attempting to time the market carries the risk of either overpaying for a property or underselling one.

If you wait for prices to drop but they continue to rise, you may end up paying more than if you had acted earlier. Conversely, if you try to sell at the market peak but miss it, you could undersell and lose out on potential gains.

Diversification

Real estate is just one component of a diversified investment portfolio. Trying to time the real estate market neglects the principle of diversification, which can help mitigate risk.

Relying too heavily on a single investment can expose you to greater financial vulnerability.

In Conclusion

Attempting to time the real estate market is generally a poor strategy due to the inherent unpredictability of market fluctuations, transaction and holding costs, missed opportunities, emotional stress, the risk of overpaying or underselling, and the neglect of diversification principles.

Instead of trying to time the market, it’s often wiser to focus on a long-term investment strategy, considering your financial goals, risk tolerance, and property fundamentals.

Contact me for more, as it would be my pleasure to get to know you and your goals, as real estate should be viewed as a long-term wealth-building tool rather than a short-term speculation game.

Category: Housing Market (Page 10 of 40)

The Benefits of the FHA Loan – and Why It’s a Popular Choice Right Now

Lower Down Payment

Gifts for Down Payments

Mortgage Insurance

Accessible Credit Requirements

Flexible Qualification Criteria

Government Backing and Stability

In Conclusion

The Fed’s Decision, Continued Home Appreciation, and Refinance Opportunities

Is the Fed Done With Rate Hikes?

What’s the bottom line?

Home Prices Hitting New Highs

What’s the bottom line?

Refinance Opportunities

A Must-Listen Podcast for Real Estate Professionals

Great News for Multi-Unit Financing | A Low Down Payment Option

Specifics

The Folly of Timing the Real Estate Market

Market Unpredictability

Missed Opportunities

Transaction Costs

Holding Costs

Emotional Stress

Risk of Overpaying or Underselling

Diversification

In Conclusion

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